Professional indemnity for UK consultants: how to set the limit

What to take away

What sets a consultant's limit

A consultant's minimum limit usually arrives from outside. The client's contract names a figure and a run-off period. A professional body names a floor in its handbook. A regulator names a rule for authorised firms.

Client contracts are the most common trigger. The insurance clauses in commercial contracts set the limit, the run-off period and whether cover must outlast the engagement.

Professional bodies come next. A chartered accountant in practice, a solicitor and a surveyor each face a different floor, and the handbook changes more often than most members expect. Accountants in practice look to the PI regulations of their body, ICAEW or ACCA; solicitors to the SRA Indemnity Insurance Rules and the minimum terms that go with them; chartered surveyors to RICS's PI requirements. Read the current version of the one that applies to you, because each sets its own minimum and the minimum is the floor, not the answer.

The solicitors' floor shows how specific these rules are. Under the SRA minimum terms for indemnity insurance, the sum insured for any one claim, excluding defence costs, must be at least £3 million where the firm is a relevant recognised body or a relevant licensed body, and at least £2 million in all other cases. There must be no monetary limit on the cover for defence costs.

A limited company does not remove the claim. The director and the company can both be named, which is why the limit should reflect the contract rather than the balance sheet.

Rules from the FCA and professional bodies

Any FCA-authorised consultancy must meet the regulator's expectations on professional indemnity cover. The FCA's professional indemnity insurance page sets out what it expects from firms and the minimum limits that apply to different types of business. The minimums themselves sit in the FCA Handbook's prudential sourcebooks, for example MIPRU for insurance and mortgage intermediaries, so check the sourcebook that matches your permissions. MIPRU 3.2 sets the minimum limits per year: an insurance intermediary needs €1,300,380 for a single claim and, in aggregate, at least €1,924,560. For a home finance intermediary that is not an MCD credit intermediary, the floor is the higher of 10% of annual income up to £1 million and £100,000 for a single claim or £500,000 in aggregate. Where a firm's permission covers both activities, the higher of the two sets of limits applies. A policy written in pounds rather than euros is acceptable, but the firm must take reasonable steps to ensure that its limits are at least equivalent to the euro figures when the policy is effected and at each renewal.

Outside the regulated perimeter, the trigger is a contract or a membership rule. Advising on investments or arranging insurance as a business is itself a regulated activity under the Regulated Activities Order 2001, so consultants who stray into that work need permissions as well as cover.

Sizing the limit in four steps

A worked example. A consultant with £150,000 of annual fees signs a contract that demands £1m of cover, and belongs to no body that sets a higher floor. Step 1 gives £1m. Step 2 adds nothing above it. Step 3 asks whether one mistake on that contract could cost the client more than £1m once remedial work and defence costs are added; if not, step 4 sets the limit at £1m, and the next quote to request is £2m, as headroom for a larger bid. A £250,000 policy would leave the consultant in breach of the contract and funding any loss above £250,000 personally. The figure below sets the limits side by side.

Illustrative figures only, for comparison of how limit, premium and excess move together. They are not a quote, a market average or a rate from any insurer.

Where consultants get the limit wrong

Claims-made wording means the policy in force when the claim arrives pays, not the one held when the advice was written. A retroactive date, where the insurer applies one, blocks claims arising from work done before that date.

Run-off cover matters when a consultant retires or closes the practice. Without it, work delivered years earlier sits uninsured when the claim finally lands.

Data claims deserve their own review. Consultants who hold client personal data can face claims after a breach, and the ICO guidance for organisations sets out the duties that sit behind those claims.

Premiums also carry insurance premium tax, charged at the standard IPT rate of 12%, so budgeting business insurance costs means separating premium, tax and any excess you would fund yourself.

General guidance only: your own contracts and risk need a qualified adviser's review.

Common questions

Do consultants need professional indemnity insurance by law?

No. There is no general statutory duty on consultants to hold professional indemnity cover. The duty usually arrives through a client contract, a professional body rule or FCA rules for authorised firms.

How much does professional indemnity insurance cost for a consultant in the UK?

There is no published standard premium: insurers quote individually, and the bill is the premium plus insurance premium tax at the standard rate given above. The premium depends on turnover, the work you do, the limit you choose and the excess you accept. Two consultants with identical turnover can be quoted very different premiums because of their activity mix, so compare like for like.

What limit should a sole consultant choose?

Start with the highest limit any live contract demands, then apply the handbook or regulator minimum. Add headroom if you are bidding for larger work, because raising a limit mid-term is harder than buying it at renewal.

Does cover continue after I stop consulting?

Only if you buy run-off cover. PI pays on a claims-made basis, so claims about past work can arrive after the practice closes, and run-off keeps the old policy available.